To go the way you plan, proceed as follows:
on the W-disk make a subdirectory called e.g. C-SAVE. In there make a subdirectory C-ROOT.
Copy all the files from your C-drive's root-directory into W:\C-SAVE\C-ROOT. There you can safely delete any files with extensions .DAT or .TXT or .LOG
Now copy any directories you want to save from that old HD into W:\C-SAVE.

To save the C-drive's MBR, go here to download DISKSAVE.EXE (tell them you have a valid license) http://www.dynawell.com/support/ResKit/download/wntdisksave.asp
Format a floppy: format a:/s and copy disksave.exe onto it. Name it OLD.
Make a second floppy the same as above and name it NEW.
Start your PC from the OLD floppy and save the OLD MBR and BootSector on that floppy using DISKSAVE. The instructions come with the program.

Shut down, take the old wonky disk out and put a new one in its place (set it to Master). Partition/format (NOT quick format)it with the same file-type (NTFS?) as the wonky one, using either the XP-CD or PARTITION MAGIC. Make the first partition on that new HD the active one.
Copy all those files from C-ROOT back into the root from the new harddisk.
Start your PC again from the NEW floppy and save the NEW MBR and BootSector on that floppy using DISKSAVE.

Now remove the NEW floppy, insert the OLD floppy and restart your PC from thew floppy. Restore the MBR and Bootsector using DISKSAVE. Remove the OLD floppy and restart your PC. It should show your old boot-menu, but may come up with an error because you have no OS on C:

If for some reason this will not work, you can restore the MBR and bootsector from the NEW floppy.
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Another way would be to use e.g. Drive Image, make a full image of your C-Drive and store it on the W-drive. (You will need to do this, using the floppy-disks of Drive Image). Then replace the wonky drive with the new one (set to Master), then, starting from the floppies again, restore the image from the W-drive back to the beginning of your new C-drive. This will restore a fully functional OS on the C-drive.

I think realblackstuff misunderstood something.. Aohalloran has two hard drives: wonky old one and a new one, both containing an XP installation not 3 hard drives: 2 new and an old wonky one (right?).

You should be able to make the new drive bootable with just copying the boot.ini file and doing "fixboot" in Recovery Console (you have to set the BIOS to boot from HD-1 instead of HD-0 too). But even then you can't remove the old drive from the system because the drive letters will get messed up and you will have a lot of trouble fixing that.

A solution is to clone the old Windows partition to the new HD so you can keep your old XP installation or set the new drive as primary master and do a format-install (you can't do the repair because non-windows apps will have all their drive letters messed up still). Or of course you can get yourself a third HD and do something like realblackstuff suggested.

If the data on your old drive (C is of no consequence, then just physically remove the drive from your system and set your new drive as master.

If the new drive does not boot, then you can repair it by booting from the XP CD and "repairing" your Windows XP installation or through recovery console.

You shouldn't need much. Just type in mkboot and press enter. Next, fixmbr and enter. Then bootcfg /rebuild and you should be ready to boot from the drive on next boot.

Of course, since you XP install is on a different drive letter, I wonder if that will work properly. Hard path names may exist like w:\Program Files\example and these will still look for the W drive. If this is the case, you may be better off just formatting and reinstalling Windows or replacing your drive with a scratch disk or partition assigned to C: